THE United States has long been viewed as the consumer of last resort for the world economy. But another given is that the Chinese are increasingly becoming the unofficial consumer staple for the luxury goods industry.
The burgeoning market forces experiment in China has seen its people become ever more aspirational, with conspicuous spending and the cachet from upmarket goods the order of the day.
And when they go abroad, the same thing has applied. Wealthy Chinese have joined Russian and Middle Eastern wealth in planting their metaphorical flag from ski slopes to upmarket beach resorts, five-star hotels to the ritziest shopping arcades (where price tags on items are deemed vulgar). No shock then, that with the jittery summer the Chinese economy and stock market has had, things have got bumpier.
Luxury goods retailer Burberry revealed yesterday that revenues trod water at a little more than £1 billion in a largely lacklustre first trading half as spending by the Chinese softened in the second quarter.
It has disturbed City analysts in their assessment of Burberry’s prospects because if China experienced a full-scale downturn the firm would be among those studiedly iconic brands looking straight down the barrel.
For Burberry, the Q2 impact was aggravated by its geographical mix, with a strong swathe of Asian-Pacific coverage, which the Chinese regard as their shopping back garden.
Can the company make up for the backwash on luxury items of the emerging market downturn with a much improved western performance, particularly over the key Christmas period?
I think, yes, but only up to a point. Burberry has the branding and marketing heft to get a strong festive period tailwind going, but it is likely only to mitigate the effect of the more uncertain economic picture in China rather than outweigh it.
As many have said, the centre of economic gravity is shifting inexorably east. And the luxury goods sector’s fortunes are going to be increasingly tied to how healthy that region, particularly its second largest economy, is.
Burberry, and, for instance, the major spirits companies purveying high-class whiskies and cognacs, are experiencing eastern headwinds now. But we may be seeing nascent systemic change in the sector, not just a cyclical trend.